5 Popular eCommerce Revenue Models
That Drive Business
Whatever you do, please do not start an eCommerce site unless you have a plan. We have compiled these articles to help you determine which e-commerce revenue model might be best for your business.
The e-Commerce space has never been so elastic and broader before. Addressing the recent upsurge in global business, technological advancement and the people following online shopping, the digital space has opened flexible ways to put up your e-commerce revenue model in the array and reach out to your audience much more easily.
It has been just 25 years that the internet has brought in the entire marketplace at your fingertips. This has forged a branched path for eCommerce allowing people to develop the different business over the internet that is categorized into wider aspects. But before we jump into our classification of eCommerce business models, let’s refurbish our definition of eCommerce business.
In simple terms, eCommerce or electronic commerce business refers to selling, buying or making a transaction over the internet in the digital marketplace. The products or services are showcased through a website or mobile application through digital signage systems integrated with a secured payment gateway facilitating product purchase and financial transactions.
Now let’s move ahead with segregating the eCommerce business model based on their revenue model.
The e-commerce revenue model is usually considered in classifying eCommerce business as revenues denote the total amount of money the company receives after trading its products or service with its customers. There is a range of options from where revenues can be generated, including advertising, affiliate marketing, subscription and a lot more.
The industry never restricts the upcoming of any new way of generating revenue. First, however, we will explain the basic five eCommerce Revenue Models with possible variations to the approach.
Generally, advertisers always charge a commission to put up their advertisements on a well-known online marketing platform. This is the classic principle that is being followed for the business categorized for the Advertising Revenue model. Thus, they take advantage of the huge traffic who regularly visit the chosen platform to shop around, see the ad and get redirected to the actual site.
This can be related to a way of increasing leads to the business. The payments are made to the hosting platform based on a fixed commission or decided upon the traffic density-driven to the business.
Business following the Advertising Revenue Model presents an indirect way of earning revenue through a digital platform. The conventional ways of putting up ads generally include display marketing that includes a super banner, wallpaper, skyscraper or rectangular ads. These are paid according to the traffic that is driven from the platform through the ads. The general income structure is based on the invoices raised against Cost per Click (CPC) or Cost per Action (CPA). Apart from the regular display marketing strategies aimed at redirecting the traffic coming onto the eCommerce platform into the address where the ads are linked, affiliate marketing and search engine marketing are other famous ways.
Google Adwords and Adsense are among the most trending and reliable options that allow you to place your ads through the Google Search engine, bringing your business website to the top of the search results when searched with the related keywords. Similar platforms are Facebook and the New York Times that allow you to display ads based on a Cost Per Mile (CPM) basis.
You must have heard of Netflix, Amazon Prime, YouTube Premium, etc., which will let you enjoy their unlimited services. However, these eCommerce business models charge their users or rathers subscribers based on a certain interval of time (daily, monthly or annual) to avail their services.
The service offerings of these companies generally include music, videos, TV channels, magazines, special services, etc., which are offered to the subscribers for a price to watch/listen or get the latest edition. Now, let me guide you through some examples of basic subscription business models.
- Premium membership: Many social media and business platforms like Xing, Linkedin, stay friends, etc., offers subscriptions to avail of additional services that get the subscribers to access daily updates, newsletters, short notices, etc. This information and quick updates are delivered to them directly to their account.
- Internet service providers: We all are familiar with the monthly and annual subscription of internet service providers or rather a broadband connection enabling the subscribers to enjoy unlimited internet service.
Publishers and content services: You are well acquainted with Netflix, New York Times, Spiegel Online, etc. These eCommerce business models ask for subscription fees based on monthly or annually to access their content.
We all know that every eCommerce business has one thing in common: its payment gateway—companies like Paypal and VeriSign, whose subscription fee depends upon the SSL certification and service period.
3. One-off Sale
One-off selling is a win-lose approach to revenue, were building the relationship with the customer is not important. Often referred to as retail selling, this approach is considered the most traditional form of generating revenue. However, one-off revenue models, or transactional revenue models, are less attractive than recurring revenue models. This is because the company has to invest something new into every sale.
eBay leverages the features of the transaction revenue model. For instance, if you wish to sell a product on the eBay site, you have to pay a fixed amount for listing the product. Every time a transaction happens, i.e., every time eBay promotes your product through its endeavours, you have to pay a fixed transaction amount. The transaction can be anything – right from users watching video associated with your product to buying it, and a certain fixed amount has to be paid.
4.  Transaction Fee Revenue Model
This model charges a fee every time a transaction is made through its platform. For example, eBay charges sellers a fee whenever an item is sold; PayPal charges users a fee for transferring money; eTrade gains a transaction fee whenever a stock is sold; and so on. While fees tend to be minimal, the revenue can be substantial if people make thousands of transactions per day!
Last but not least is affiliate marketing. With this model, businesses earn revenue by promoting and selling another person’s (or company’s) product on their site (as opposed to the advertising revenue model, which doesn’t allow for purchase on the host’s site). The concept of affiliate marketing is based on revenue sharing. If a business has a product and wants to earn more, you can promote complementary products or services of another company that will, in turn, pay you for your referrals. It’s a win-win for both parties; the affiliate gains a new, passive revenue stream, and the merchant gains new customers!
Which revenue model is right for you? Ultimately, you need to understand your customer and their expectations, assess your current resources to find a realistic revenue model, and identify your budget allocation. And, there are many other types of revenue streams to consider within these five models (check out 101 of them here). Of course, while competition is fierce in the online world, there has never been a better time to get in on the action. According to TechCrunch, COVID-19 accelerated the shift to eCommerce by five years in just one year, boosting revenue growth in eCommerce and making it the number one shopping choice of customers everywhere.
Types of eCommerce Business and Revenue Models
Over the past two decades, the eCommerce market has been developing especially rapidly, fueled by advancements in technologies, the widespread availability of the Internet and social networks. Now, let’s take a look at the most common eCommerce transactions.
The B2B model is defined as selling products to other companies. That definition only scratches the surface, given that B2B customers are a vague group. It may include business owners, project managers, and decision-makers on various levels. Lots of companies in B2B are service providers, including software development companies, cloud hosting, team and project management tools, and much more. The example is right in front of you: NCube provides virtual teams of software developers to businesses that need to build software.
Anything we buy online falls under a B2C transaction. In this model, a company sells goods (and sometimes services) to an individual in an online store. This includes traditional online stores and a relatively new entrant on the B2C market – selling goods via social media. B2C differs from B2B in a short sales cycle where most purchases are made at the spur of a moment. Instead, B2C businesses market via mobile and web apps, using native advertising and remarketing techniques to appeal to the customers’ emotions.
Hiring a freelancer on one of the freelance platforms is a C2B transaction, in which you can engage an independent specialist like a graphic designer, customer support manager, or back-office assistant. In this model, people seek companies’ attention, so they put in a lot of effort to land a job. That includes gaining a good reputation with platform users, a portfolio, and always collecting feedback. Good examples of С2В are talent repositories like Upwork, Fiverr. Also, we should mention advertising platforms that help monetize your website content and social influencers that market products.
The model where the customers trade and buy via an eCommerce platform is known as C2C eCommerce. Well-known companies like Amazon and eBay make a lot of money, providing a virtual place where one individual sells to another. In traditional C2C, none of the participants call themselves businessperson. Platforms that provide this type of transaction for a commission resemble traditional Craigslist.
No matter which revenue model or combinations of models work, the model until it works for you!
Article compiled by hughesagency.ca
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